Retirement Planning in 2009 - What You Need to Know

Planning for a successful retirement is a complicated, yet achievable goal and below is some information that will help you better understand how key retirement planning opportunities may affect your financial future.

Automatic Investment Programs
"Putting your savings on auto-pilot." "Pay yourself first." Such common savings are repeated so often because they're so true. One of the easiest ways to accomplish automatic savings is through a workplace retirement program such as a 401(k). But you can go farther. You can create an automatic investment program (AIP) with virtually any bank, discount brokerage, or other financial services firm. An AIP replicates the same automation featured by a 401(k): without any ongoing conscious effort on your part, you move a certain amount of money into savings at an interval you set. For example, you could arrange to move $50 every week from your checking account to your savings account. Another possibility: moving $400 every month to your Roth IRA. By establishing automatic investment programs in your life you benefit not only from advantageous dollar cost averaging, but also the knowledge that, even if you spend every last dollar in your checking account, you're still saving something.

Why Some People Have to Come Out of Retirement
Unfortunately, countless people have been forced back into the workforce solely due to the stock market correction. Others never really had a chance to stay retired because they never saved enough in the first place. Of those facing the prospects of looking for a job in this economy, optimism is not common. Those were the thoughts in the back of my mind when I read "Coming out of retirement at 62", a story I recommend you check out at CNNMoney.com. As I read the profiled individual's story, I was initially somewhat heartbroken. How difficult it must be to lose half of a million dollars in stock option value during retirement! Then I thought to myself, how can you leave such an enormous percentage of your net worth tied to the performance of one company when you're in retirement? Perhaps he was not yet allowed to sell the stock options? But if so, he shouldn't have relied on them so heavily - he needed more savings. If not, he might have been a bit greedy by holding on to them so long. It's got to be tough to go through what he's going through. Yet somehow I found my sympathy waining when it was revealed that he and his wife were continuing to spend $8,000 a month despite an income of $1,700 and the knowledge that they had insufficient savings to go much longer. If some of these expenses were due to medical costs or some other crisis, that would be different. But at least $700 of the monthly expenses were due to a golf membership. Yet he claims he's looking for a job there too. C'mon! Denial ain't just a river in Egypt. I wish the man good luck. He's going to need it. What do you think?

Automatic 401(k) Enrollment Doesn't Take Away All of Your Responsibilities
The Pension Protection Act of 2006 encouraged many companies to automatically enroll their employees in their 401(k) plans. By many accounts, this was a positive development, since the default choice, that requiring no action on the part of an individual, often proves to be the most popular. On the other hand, the timing of this law could have been better in retrospect since its enactment was shortly followed by the biggest stock market correction in decades. Nonetheless, it's a net win for employees who, on average, are now more likely to save for retirement through their 401(k) plans than previously. However, even if you or a loved one have been automatically enrolled in your plan, that's just step one. Other considerations for those who have been "opted-in" to their workplace retirement plans include: The contribution level: is it high enough? Often it is set at a relatively low rate. Are the investment selections appropriate? If you're particularly risk-averse and your default investment selection is a target date fund, you may need to scale back your equity allocation. Another possibility is that you've been placed in guaranteed income or stable value funds, yet are young enough to benefit from and handle the corresponding risk of a stock-based investment selection. Even if you've been fortunate enough to be participating without any previous action on your part, now is the time to make sure the detailed selections made on your behalf are truly appropriate for you.

Cut Corners, But Not Your 401(k) Contributions
You don't need me to tell you that times are tough. After all, between the nightly news, the remaining newspapers in circulation, and the myriad of web sites, it would be hard to miss the reality of the ever-increasing unemployment rate, the higher frequency of foreclosures, and the generally lower level of consumer confidence. All this news might make you want to cut back on spending to ensure yourself of a greater emergency fund should you personally experience a financial setback. But be careful of cutting back on your 401(k) contributions. If you have one, a 401(k) plan is one of the most important long-term saving vehicles available. Not only does your contribution save you taxes the very day you save, but you can also benefit from decades of tax-deferred growth. Should your employer also offer you a match on your contribution, your failure to fully capitalize means you are forgoing free money. No matter the circumstances, that's never the right move.

Sharif J. Small, '05

S.J.S. Financial Firm